Recently, the Economic Division of the District Court in Tel Aviv – Jaffa (by the honorable judge Ruth Ronen), released an important decision regarding the appropriate interpretation to be given to the "Profits Test", one of the distribution tests set forth in Section 302 of the Companies Law 5759-1999 (the "Companies Law").

According to the court's decision, in the event that after the publication of the financial statements by which the company's compliance with the "Profits Test" is measured, yet prior to the Board of Directors of the company deciding on a distribution, a material adverse change occurs in the company, which will, with a very high level of probability, cause the Company to fail to meet the "Profits Test" as measured in accordance with its subsequent financial statements, and when the Board of Directors is actually aware of such a change and its consequences, it cannot be determined that the company complies with the "Profits Test".

For more details about the decision, please click here (Hebrew).